Treatment of Previously Discontinued Add-Back
**Important Information About Possible Year-End Federal Legislation This publication was finalized before all year-end federal legislative changes were complete. Therefore, some of these add-backs may need to be adjusted. You may wish to periodically check DOR’s homepage at www.in.gov/dor for updates about any impact of late federal legislation.
Several discontinued add-backs were created as a result of timing differences between federal and Indiana allowable expenses.
Tax Add-Back If you did not complete Federal Schedules C, C-EZ, E, or F, which include sole proprietorship income, farm income, rental, partnership, S corporation, and trust and estate income (or loss), then do not complete this line.
On those schedules you are allowed to claim a deduction for taxes paid which are:
• Based on, or
• Measured by income, and
• Levied at a state level by any state in the United States. If you claimed this kind of deduction on any of these schedules, then you must add it back to your Indiana income.
Do not add back property taxes on this line
Wagering Taxes. The portion of wagering taxes required to be added back as a tax based on or measured by income is being reduced (phased out) each year for eight years. The percentage of taxes required to be added back is determined by the first date of the taxpayer’s taxable year, and is determined as follows: 2020 – 75%; 2021 – 62.5%; 2022 – 50%; 2023 – 37.5% 2024 – 25.0%; 2025 – 12.5%; 2026 and later – no add back required
For example, Casino X remits $10,000,000 in riverboat wagering taxes in 2019. Individual owns 10% of Casino X. Individual’s share of Casino X’s income taxes is $1,000,000. Instead of individual adding back the full $1,000,000, Individual will add back $875,000.
Note. Income, losses and/or expenses from other schedules and forms may flow through to federal Schedules C, E and F. For example, partnership income from federal Schedule K-1 (Form 1065) may be included on federal Schedule E, while expenses from federal Form 8829 may be included on federal Schedule C. Make sure to check these schedules and forms for any deduction that needs to be added back.
Net Operating Loss Add-Back
Any net operating loss (NOL) deduction reported on line 8 of your federal Schedule 1 must be added back on this line. Write the amount of the net operating loss as a positive figure. (You may be eligible to claim an Indiana net operating loss deduction on Schedule 2, under line 9.)
Note. Leave this line blank if you did not report a net operating loss deduction on line 8 of your federal Schedule 1.
OOS Municipal Obligation Interest Add-Back
Interest earned from a direct obligation of a state or political subdivision other than Indiana (out of state, or OOS) is taxable by Indiana if the obligation is acquired after Dec. 31, 2011. Interest earned from obligations held or acquired before Jan. 1, 2012, is not subject to Indiana income tax and should not be reported as an add back.
Note. Interest earned from obligations of Puerto Rico, Guam, Virgin Islands, American Samoa, or Northern Mariana is not included in federal gross income and is exempt under federal law. There is no addback for interest earned on these obligations.
For more information about this add-back, see Income Tax Information Bulletin #19 at www.in.gov/dor/files/reference/ib19.pdf.
Bonus Depreciation Add-Back You must make an exception for any bonus depreciation deduction used for property placed in service after Sept. 11, 2001. Bonus depreciation is the additional first-year special depreciation deduction allowed under Section 168(k) of the Internal Revenue Code (IRC).
Figure the net income (or loss) that would have been included in federal adjusted gross income had the bonus depreciation method not been used. Then, enter the difference, which may be a positive or negative amount.
Example. Mack used the bonus depreciation method for federal income tax purposes. After refiguring the depreciation without using the bonus method, he has to add back $1,500 on his Indiana tax return.
Note. After making an initial adjustment for bonus depreciation you’ll need to refigure the amount of depreciation available for state tax purposes for subsequent years.
Example. Ann made an initial adjustment for bonus depreciation on last year’s Indiana tax return. This year she figures she is entitled to a $150 additional depreciation amount for state tax purposes. She should enter that amount as a negative entry, or -150, on line 3.
New. Special rules may apply if the bonus depreciation is taken against property acquired in a like-kind exchange. See Information Bulletin #118 at www.in.gov/dor/3650.htm for additional information.
For additional information see Information Bulletin #118 at www.in.gov/dor/3650.htm.
Section 179 Expense Add-Back You may have figured an IRC Section 179 expense using a ceiling or more than $25,000 for federal tax purposes. Indiana allows you to figure IRC Section 179 expense using a ceiling of no more than $25,000. If you figured IRC Section 179 expense using a ceiling amount of more than $25,000, you will need to add back the difference between it and $25,000 on this line.
New. Special rules may apply if the Section 179 expensing is taken against property acquired in a like-kind exchange. See Information Bulletin #118 at www.in.gov/dor/3650.htm for additional information.